Jim Chalmers:
Today, unsurprisingly, the independent Reserve Bank left the cash rate on hold at 3.60 per cent. This is not the outcome that millions of Australian homeowners would have wanted but it’s certainly the outcome that markets and economists were expecting.
Interest rates have already come down 3 times in 6 months this year and that’s a very good thing. The 3 interest rate cuts which are already in the system are already providing very welcome relief to millions of Australians with a mortgage.
For a household with a mortgage of $700,000, the rate cuts this year means they are saving about $330 a month, or about $4,000 a year.
The progress that we’ve made together on inflation this year has already given the Reserve Bank the confidence to cut interest rates 3 times in that six‑month period.
Now we know that when interest rates are cut around the world, they’re not always cut at every meeting, or indeed every couple of meetings. So this outcome today from the independent Reserve Bank is not a surprise to markets or to economists but nor is it the outcome that millions of Australians with a mortgage would have been hoping for.
If you look at the progress that we’ve made on inflation on the most reliable measure we’ve got, both headline and underlying inflation at their lowest rates in almost 4 years and both of them back in the Reserve Bank’s target band.
Now whether it’s the more volatile monthly measure or even the quarterly measure, we do expect inflation to bounce around, but we have seen it at lows for the last 3 or 4 years when it comes to those quarterly measures and that does reflect the progress we have made on inflation.
The Reserve Bank’s statement also goes into the global economic uncertainty that we are confronting here in this country and indeed around the world. And what that global uncertainty means is that the Reserve Bank has taken this decision to stay pat for the time being in the face of that uncertainty, to see how it pans out.
We have identified as a government, as the Reserve Bank has as an independent monetary policy board, that volatility and uncertainty in the global economy does weigh heavily on our own domestic economy and on the decisions that we take as a government and as an independent Reserve Bank board.
In the face of all of this uncertainty, Australians should be proud of the progress we’ve made on the economy. We’ve been able to get inflation down while maintaining low unemployment. We’ve seen real wages and living standards grow in recent data. We’ve also been able to get the debt down substantially, deliver a couple of surpluses and a much smaller deficit, as revealed in yesterday’s Final Budget Outcome. And the Reserve Bank has also pointed out in its statement today that one of the really encouraging elements of our economy in recent months is we are seeing the private sector pick up its rightful role as the primary driver of growth in our economy.
We’ve been able to keep the economy ticking over. We’ve been able to keep unemployment low. We’ve made very substantial progress on inflation. We’ve made welcome progress as well on real wages and in the budget as well. But we know that there’s more work to do in our budget and in our economy, and that’s the government’s focus.
Now I’m conscious that the Reserve Bank Governor is up shortly, and so I’ll take a couple of questions, but be briefer than usual. Over to you.
Journalist:
Prior to today’s decision, economists had revised their rate cut prediction after the latest monthly inflation figures. Did today’s announcement confirm that inflation is driving a flat line in rates?
Chalmers:
Well, a couple of things about that. First of all, I don’t make predictions or pre‑empt decisions taken independently by the Reserve Bank. There are good reasons why Treasurers of both political persuasions don’t do that. The market expectations change from time to time.
But even before that most recent monthly inflation data, there wasn’t a real expectation of a rate cut today. Obviously, after decisions like this and people will tune into the Governor at 3:30 this afternoon, the decisions taken by the independent Reserve Bank, the statements they release, the press conference that the Governor does, all of that has implications for people’s expectations of interest rates into the future.
My job is to focus on my part of this, which is to get the budget in better nick – and we have – to get inflation down – and we’ve played a helpful role in that – keep the economy ticking over, grow real wages and on all of those fronts we’ve got more work to do, but we’ve made good progress.
Journalist:
Are you concerned that the RBA won’t cut interest rates anymore this year?
Chalmers:
Again, I don’t engage in that kind of commentary. We’ve seen interest rates cut 3 times already this year. When we came to office, interest rates were already rising. Inflation was around double what it is now, and rising fast. We’ve been able to get inflation down. We’ve seen interest rates cut multiple times as a consequence. We’ve got real wages growing. We’ve kept unemployment low. We’ve got the budget in better nick.
So all of that represents good progress, but we know that there is more work to do, people are still under pressure. They’re getting some welcome relief from those 3 rate cuts earlier this year. They’re getting relief from the government in the form of tax cuts and responsible cost‑of‑living help, but we know that there’s almost always more work to do.
Journalist:
Treasurer, could I just ask your thoughts on another matter? Just on the Seven West and Southern Cross proposed merger? What are your thoughts on it? Do you support it? Do you have any concerns at the stage?
Chalmers:
Obviously I’m across the announcements made by the potential merger partners. And we monitor these kinds of developments closely, I get briefed from time to time on these kinds of proposals. But we need to recognize that the ACCC will go through a process, as will ACMA, the relevant communications authority. They will both review this proposed merger in their usual, considered way, and it’s important that I don’t pre‑empt decisions taken by those independent regulators. As I understand it, the deal would also still require shareholder approval.
And so it’s been announced. Obviously, we’ve clocked that. Obviously, we will get briefed on that from time to time. But primarily there’s a role here for 2 of our regulators, our competition regulator and our media regulator. There’s an important role for shareholders as well. And there are good reasons why I won’t pre‑empt any of those processes.
Journalist:
Also on a slightly different matter, why are the housing approval rates falling further behind? And, is the housing target unrealistic?
Chalmers:
Our housing target is ambitious, but it’s achievable. And in the last little while we have seen some welcome progress when it comes to the housing market. And even if you look at those numbers which were released today on approvals, it’s important to remember that even though building approvals fell in August, they are still up 3 per cent in through the year terms. So in through the year terms, we have seen a 3 per cent growth when it comes to approvals.
When we came to office a few years ago, the construction sector was facing very challenging conditions. Partly because interest rates were already rising, construction costs were rising sharply, dwelling investment was going backwards, and approvals were in freefall. And we’ve been able to turn those things around, but we never had the expectation that we would turn them around overnight. It’s happened over a period of time.
So if you look at the trend series for monthly building approvals, which takes out some of the volatility, building approvals are growing at 5.8 per cent now – they were going backwards by 21.7 per cent when we came to office. If you look at cost growth in construction, it grew 0.7 per cent through the year most recently – it was growing at 19.4 per cent when we came to office. If you look at dwelling commencements in the March quarter, it was up 17.3 per cent in annual terms – it was falling 28.5 per cent when we came to office. Dwelling investment growing at 4.8 per cent now – it was going backwards 5.1 per cent when we came to office. Investment in new builds rose 4.8 per cent in annual terms in the most recent data – it was falling 8.4 per cent when we came to office.
So across all of those indicators, when you take out the month to month volatility and you look at the trends over the last 3 years, we have actually made some really good progress in the housing market. But it remains the case that our target is ambitious, we know that. Everybody needs to do their bit, the Commonwealth is certainly doing our bit.
Journalist:
You said one of the challenges that you faced with that target earlier was interest rates. Now that they are starting to slow down do you anticipate that creating further challenges with that target?
Chalmers:
We’ve seen 3 interest rate cuts this year and that will obviously have an impact on building and construction. The most recent movements in interest rates, the 3 most recent movements in interest rates have all been down, and that has been helpful when it comes to construction costs and new building. But it’s not the only reason why we’ve seen that 3‑year improvement across all of that data that I mentioned a moment ago.
Our predecessors did almost nothing on housing, and as a consequence, we started way back. We’ve been able to turn around things like construction costs and approvals and new investment, all of that is welcome. But we know that we’ve still got 4 years to go in this target. It’s an ambitious target, but it’s achievable. Today’s monthly data is notoriously volatile, the through the year data paints a much more encouraging picture.
Thanks very much everyone.